Suggestions of experts
Ramit Sethi, the author of “I Will Teach You To Be Rich” suggests that one should spend one’s income in definite streams of expenses. The first thing that he recommends is that people should create a budget and then stick to it in a steadfast manner. To start with, he asks people to spend the majority of their income – amounting to as much as 50 to 60 per cent – for the fixed expenses. This includes costs such as rents and/or mortgages, various utilities, bills to be paid for cell phone calls, insurance, payments for private vehicles, and other miscellaneous expenditure such as groceries, internet and clothes etc.
Next, Sethi says that 10 per cent of one’s income should be dedicated for making investments from the money that is left after paying the taxes. As far as savings are concerned, Sethi states that 5-10% should be kept aside for the purpose. Young people can save up for a variety of purposes such as going on a vacation, making down payment on the house that they have always wanted to buy. Savings also come in handy during wedding or at times of emergency. Sethi says that the remainder of the money should be used for guilt-free expenses.
He feels that every person needs to spend for fun and expects young people to do it more often than others would. This segment includes expenses such as going to bars, going to see a movie, attending a game or using cabs etc. Going by this approach, it would not be unwise to suggest that Sethi exhorts people to spend more money on things that they love and less on things that they dislike, and still be able to save some money that would come in handy later on. Bill Schultheis, who has authored “The Coffeehouse Investor – How to Build Wealth, Ignore Wall Street, and Get On with Your Life” has his own take on this issue.
Schultheis proposes that people should save for later but they should also invest some money for the present. He prioritizes areas such as mutual funds and stock markets for young people, provided they are interested in the same. He says that 10% of youngsters’ money should be used for investment – it does not matter what kind or form it is. He also says that young investors should not shy away from the prospect of losing their money in the stock market. Any loss suffered in the present would only make them wise in the future.
The author of “FAFSA Made Easy: Getting the Most Out of College Financial Aid” Arthur Isabella suggests that a 50-30-20 plan should be followed by young people. Isabella says that 50% should be dedicated towards regular expenses, 20% should be for debts and retirement savings and the remainder of the money should be used for recreational activities. He says that one should recognize the basic fact that all our expenses are related. Considering the critical condition of the job market he recommends that there be three kinds of budgets – one for good times, one for normal times, and one for when nothing is working.
Importance of self control
It is very important to be controlled in one’s expenses. Quite a few of us are lucky in the way that we inherit the virtue from our parents and it is drummed into us. With proper control on your expenses it will always be easier to maintain a leash on your spending as well. You can always use the credit card to buy something but isn’t it better to save for the same and then buy it?
It is not really worth it to pay interest on something as daily and mundane as a pair of jeans or a box of cereals. If you are not able to control your urges, it does not matter how much you earn at the end of a month – you will keep paying for them for a decade. In case you want to make sure your credit cards can be used for convenience expenses or for availing the rewards always pay the whole balance when the bill comes to you at the end of a month. Also, be sure to have only that amount of cards, which you can keep a hold of.
Be responsible for your own financial future
You should always remember this – if you have no idea as to how you can manage your own money others will always find ways to wreck your ship. Some of them can have bad intentions such as financial planners who work on basis of commissions and operate in a Machiavellian manner. Others might have only your good at their heart but they have no idea of what they are doing. Among them could be your own family members who might wish you buy a house but have no knowledge as to how you would pay off the mortgage.
There are certain other things that you should keep in mind:
- You should know where your money is going. Read “5 Easy Ways to Plan Your Spending and Increase Your Saving“.
- Create an emergency fund
- Retirement planning should be as quick as possible
- Understand taxes
- Have a healthy lifestyle
- Get as much insurance as possible.